Credit Counseling Can Weaken Your Credit Rating
When I tell mortgage applicants that, if they’re in credit counseling, they are less likely to qualify for a home mortgage, they are agast!
Since most consumers seek credit counseling in an effort to improve their credit worthiness, it is clear that the information given to them at the onset by credit counselors, fails to provide an accurate understanding of the process.
After hundreds of complaints from consumers about misleading and/or high-pressured sales tactics which included significant fees and poor education, the IRS has revoked the tax-exempt status of four nonprofit credit counseling agencies. An IRS official also indicated that they are reviewing the status of many more of these nonprofits who offer credit counseling services.
This brings to fore the many misperceptions of consumers seeking debt-relief through credit counseling. The counseling services may reduce some of the high-interest rates you are paying on credit cards, but the counseling services don’t improve your credit rating. In reality, once you sign on for credit counseling, your credit is further damaged and it can prevent you from qualifying for a loan.
Many mortgage companies will not extend credit to anyone that is in credit counseling and, often, for a specified time after leaving the counseling service. It can effectively impact your qualification for a home mortgage just like bankruptcy.
If you wish to improve your credit or seek debt-relief you should carefully investigate all options and be confident that you understand the benefits as well as the consequences of credit counseling through any fee-based agency.